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Wednesday, April 21, 2004

Free Trade and the Welfare State

Talk about synchronicity: just this morning I wrote an exam for William Watson on this very subject. Well, more or less.

The truth is that leftists have all sorts of reasons to oppose current and further free trade measures. Nor has the economic truth of the matter deterred critics in the past; as Watson says, the best rejoinder to most critics of NAFTA's Chapter 11 is to read it to them - it's hardly objectionable stuff, and nothing like what it's said to be.

That being said, market proponents should concede that free trade does indeed hinder certain types of welfare statism. I agree with and defer entirely to Rasmusen and Cowen on the effect of free trade on social programs; it should perhaps be further noted that both NAFTA and the WTO make provisions for the 'protection' of domestic health and social service sectors. There can be no doubt, however, that a combination of National Treatment and Most Favored Nation status (which together form the core of most modern free trade deals) makes economic intervention for the protection of domestic industries more difficult.

Andrew Jackson of the Canadian Labor Congress makes this sort of argument in this paper (.pdf format) which addresses the possibility of a 'Big Idea' arrangement with the US. (For more on the 'Big Idea' see Wendy Dobson's paper here). Perhaps unsurprisingly for a labor lawyer, Jackson would like to see state intervention to redirect 'misallocated' capital in order to develop a more robust industrial economy. I don't think there's any question that such a policy is harder to enact under a free trade regime.

In that sense, at least, the claim that free trade restricts the welfare state is true - unless 'welfare state' is defined quite strictly. Of course the free marketer (marketeer?) sees such a restriction as a good thing; but that's another question.

Posted by David Mader on April 21, 2004 in International Affairs | Permalink


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Tracked on 2004-04-21 3:06:38 PM


You're right, but that's the point (and was Mulroney's point at the time): the only restrictions that free trade treaties put on government action are the ones that are written in the treaty­. Contrary that what is often asserted, there is no hidden general imperative flowing from free trade that requires that taxes or social spending be cut "because if not, we won't be able to compete" or "because if not, all our jobs will move South/offshore/to Mars"

Posted by: Laurent Moss | 2004-04-21 3:54:59 PM

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